The board of the troubled Italian bank Monte dei Paschi di Siena is meeting to weigh up to potential solutions.
Photograph: Alessandro Bianchi/Reuters

The world’s oldest bank, Italy’s Monte dei Paschi di Siena, is racing to finalise a rescue deal ahead of the result of an official assessment of its financial health that is expected to expose a need for billions of euros of extra capital.

European regulators will release the results of a stress test on MPS, Italy’s third largest bank, and 50 others across the EU that are being assessed after the close of US markets on Friday. The results have already been sent to the banks, which include British high street banks and major lenders such as Deutsche Bank, but will only be made public at 9pm GMT on Friday.

They will be closely followed by investors around the world but particularly in Italy, where worse than expected news could set off a chain of events that may have drastic consequences for thousands of ordinary Italian investors who bought debt in the bank. There is concern that an acute banking crisis in Italy, led by troubles at MPS but possibly other banks as well, could ignite European and global banking crises.

Ahead of the stress-test results, the MPS board met to weigh up two potential solutions: a last-minute offer received on Thursday night from the former chief executive of Intesa Sanpaolo, Corrado Passsera, and the Swiss bank UBS; and a rescue plan co-ordinated by JP Morgan and Mediobanca. The board is likely to reject the UBS offer, sources told Reuters.

According to the Italian business newspaper Il Sole 24 Ore, the European Central Bank will give the green light to the JP Morgan plan, under which the bank would unload about €9bn (£7.6bn) of bad debt – loans that have not been repaid – and receive an injection of €5bn in capital from private sources.

A new Italian banking fund created to help shore up smaller struggling banks, called Atlante, or Atlas in English, would also be involved in the rescue. Il Sole reported that Bank of America, Credit Suisse, Citi and Goldman Sachs might join JP Morgan and Mediobanca in coordinating it.

MPS is also scheduled to release its latest results just hours before the outcomes of the stress tests are formally announced.

The Italian banking system is the main focus, but the results of the tests will be scrutinised for an indication of the financial health of other major lenders, including Deutsche Bank, Germany’s biggest bank and the institution the IMF has deemed to be the biggest systemic risk to the financial system.

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The stress tests have become a focus since the 2008 banking crisis and were previously conducted in 2011 and 2014. This time, there is no pass or fail hurdle this time and only 51 banks rather than 124 two years ago have been assessed for their ability to withstand economic and market shocks.

The European Banking Authority saidthe 51 banks covered about 70% of the EU banking sector. No banks from Cyprus, Greece or Portugal are big enough to fall within the scope of the test, which looks at four main risks: a rise in bond yields; rising public and private sector debt; weak profits at banks; and stresses from outside the banking sector.

Italy will receive much of the scrutiny, given that its banking system has been weighed down by its failure to unload about €360bn in bad debt, much of which was accrued over years of recession, when large and small companies were unable to pay back loans. Italy’s finance minister, Pier Carlo Padoan, however, insisted as late as Sunday that the country was not facing a banking problem.

Italy has sought to convince Brussels for weeks to allow it to bail out the bank without triggering relatively new banking regulations that were put in place to dissuade such national bank rescues. Without waiving the rules, the investments of thousands of Italians who bought debt in MPS, many of whom may not have realised that they were risky, would be wiped out under the EU rules.

If financial markets ultimately support the rescue of MPS and show confidence that the plan is sufficient, it will not only be welcomed by ordinary Italians. It will also relieve pressure on the country’s prime minister, Matteo Renzi. He would have liked to spend the summer bolstering his case for a critical autumn referendum on constitutional reforms he supports, but instead he has been forced to grapple with the banking issues.

His constitutional reforms referendum faces significant resistance from his political rivals, and he has said he will resign if it fails. It is increasingly looking like a vote of confidence in the prime minister, who came to power following an intra-party coup and has never faced a national election. It is far from clear whether Renzi will survive the vote, but a banking crisis would make the referendum’s package much more difficult.